Vanilla prices fall on demand, rising output

INCREASE in production without corresponding growth in demand has pushed cured vanilla prices down to $35 a kg from over $400 a kg two years ago.

Production in Madagascar, world's largest producer of vanilla, has trebled to 1,500 tonne in 2004 from 500 tonne in 2003. As a result, vanilla prices have dropped to $25-35 a kg from around $180 a kg in 2004, according to market sources.

High prices in the recent years enthused farmers in other countries such as Papua New Guinea, Uganda, India, Costa Rica and Colombia to take up vanilla cultivation. These countries would be harvesting their vanilla crops from 2005 onwards.

According to reports, farmers in Vietnam have also embarked on vanilla cultivation of late and it is predicted that it would lead in the world production of vanilla in 5-10 years. Thus, it is expected that global vanilla production would go up in the coming years. However, the Vietnam Government has yet to approve the production of vanilla in that country.

Although vanilla extract from pods is still used by the food industry, this accounts for less than one per cent of vanillin production. The remaining 99 per cent is obtained synthetically.

World production of vanillin is estimated at 12,000 tonnes, of which synthetic is 11,880 tonnes. Indian demand for vanillin is estimated at 250 tonnes a year with an estimated growth of 8-9 per cent a year. While the cost of synthetic vanillin is $15 a kg, natural vanillin is available at over $80, the market sources said.

Vanilla is used widely in flavouring in Europe and the US. Its main use is in ice-creams, especially in the world's most expensive ice-cream "The Golden Opulence Sundae" from a New York company that is manufactured using natural vanilla, they said.

Though the market sources here continue to maintain that there will be a turnaround by next year, indications so far have been to the contrary.

IMF was quoted as saying "the value of vanilla exports in 2005 may turn out to be lower than projected, in spite of the relatively good harvest and an expected sharp increase in the volume of exports, if the world market remains depressed." The food industry wanted supplies to sustain but within reasonable price brackets, they said.

All the manufacturing units, large, medium and small, had shifted to using synthetic vanillin when the prices shot up to unprecedented levels. Except for some large ice-cream manufacturers who continued to use natural vanillin even at higher prices all others moved away pushing the demand down, they said. These companies have to revert to using natural vanillin and the pace is so slow that the demand for vanilla beans failed to pick up as expected, they pointed out.

However, a US firm is said to have imported 1.2 tonne of organic Indian vanilla from a Bangalore-based non-profit organisation this year. The total Indian export of cured vanilla in April was 3.30 tonnes valued at Rs 0.92 crore as against 6.89 tonnes worth Rs 13.30 crore in April 2004.

The move by the US company, Danisco, they said, "serves several purposes: spreading sources of vanilla can help to guarantee supplies and reduce risk; the `sustainable' project ensures local farmers and workers receive all the earnings from the sales; and food firms can meet growing consumer demand for organic ingredients."

(This article was published in the Business Line print edition dated June 14, 2005)

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